As a part of the central government’s debt restructuring process, four states – Haryana, Uttar Pradesh, Rajasthan and Tamil Nadu – have begun the process of taking over their short term liabilities from the respective power distribution companies. According to the approved scheme, 50% of the liabilities would be taken over by the state governments. This would be converted into bonds issued by the Discoms (power distribution companies) and backed by a state guarantee.

As a part of debt restructuring process, the central government will provide Transitional Finance Mechanism for liquidity support

Solar power is becoming increasingly competitive across many states for commercial and industrial consumers

Market participants now view the subsidy mechanism as a roadblock more than an incentive

The central government will provide the Transitional Finance Mechanism (TFM) for liquidity support and a capital reimbursement support of 25% of the principal amount if all terms are met. As per the requirements, these Discoms will need to become financially sound in a time bound manner, primarily by raising tariffs. For example, Tamil Nadu has already raised power tariffs by 37% last year and Uttar Pradesh by 40% this year.